Pinnacle West Reports Third-Quarter Earnings

  Pinnacle West Reports Third-Quarter Earnings

  *Cooler-than-normal weather versus record-breaking temperatures in the same
    period last year results in lower retail sales
  *2012 regulatory settlement contributes to improved financial results while
    keeping average residential customer bills flat
  *Company remains focused on operational excellence and continuous
    improvement

Business Wire

PHOENIX -- November 02, 2012

Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated on-going
earnings of $244.8 million, or $2.21 per diluted share of common stock, for
the quarter ended September 30, 2012. This result compares with on-going
earnings of $245.8 million, or $2.24 per share, in the same 2011 period. The
Company’s consolidated net income attributable to common shareholders for the
2012 third quarter was $244.8 million, or $2.21 per diluted share, compared
with net income of $255.4 million, or $2.32 per share, for the same quarter a
year ago.

On-going earnings exclude results of discontinued operations substantially
related to the Company’s former energy services business. A reconciliation of
reported earnings to on-going earnings is provided at the end of this release.

“Arizona Public Service’s most important accomplishment – especially during
the hot Arizona summer months – is maintaining the high quality of service and
reliability our customers expect of us,” said Pinnacle West Chairman,
President and Chief Executive Officer Don Brandt. “During the quarter, our
generation fleet performed well, our customers experienced fewer outages, and
our employees provided high quality service. At the same time, disciplined
cost management remained a central theme at our Company and is a key to future
earnings improvement.”

Brandt added that the third-quarter results demonstrate the positive value of
employees’ focus on operational excellence, as well as the broadly supported
retail rate settlement implemented this summer. “The average residential
customer benefitted from a decision that kept their overall rates flat in
2012, while still allowing the Company the opportunity to earn a reasonable
return for investors,” he said.

The third-quarter on-going results comparison was affected by the following
negative factors:

  *The effects of weather variations decreased the Company’s earnings by
    $0.17 per share following an abnormally hot summer in 2011. The average
    high temperature in the 2012 third quarter was slightly below normal at
    103.2 degrees, while the average high temperature in the same 2011 period
    was 106.4 degrees. As a result, the return to more conventional weather
    patterns contributed to a 15 percent reduction in cooling degree-days (a
    proxy for the effects of weather) in the 2012 period versus a year ago.
  *Increased operations and maintenance expenses impacted earnings by $0.10
    per share compared with the prior-year period. The expense increase
    primarily consisted of an increase in employee benefit costs; beginning of
    amortization of pension and other post-retirement benefits in 2012
    compared with deferral of such costs in 2011 pursuant to the Company’s
    retail regulatory settlements; and higher fossil generation costs as a
    result of more planned maintenance being completed in the current-year
    quarter than in the same quarter a year ago. The O&M variance excludes
    costs associated with renewable energy, demand side management and similar
    regulatory programs, which are largely offset by comparable amounts of
    operating revenues.
  *The absence of certain items that reduced the Company’s effective income
    tax rate in 2011 reduced results by $0.09 per share.
  *A decrease in retail electricity sales – excluding the effects of weather
    variations – reduced results $0.02 per share. The sales decrease was
    primarily related to the impacts of customer conservation and energy
    efficiency and distributed renewable generation initiatives. However,
    modest customer growth of about 1.2 percent quarter-over-quarter helped
    offset the lower sales.

These factors were largely offset by the following positive items:

  *The Company’s 2012 regulatory settlement, which included a retail non-fuel
    base rate increase,  improved earnings by $0.21 per share. However,
    overall rates for the average residential customer did not change because
    the non-fuel base rate increase was offset by other rate changes. The
    settlement became effective July 1, 2012.
  *Higher transmission revenues improved earnings by $0.09 per share,
    primarily because of  a retail transmission rate increase implemented in
    August 2012.
  *Lower infrastructure-related costs increased earnings by $0.04 per share,
    related to lower depreciation and amortization, primarily attributable to
    the operating license extensions at the Palo Verde Nuclear Generating
    Station in 2011; and decreased interest expense due to lower debt balances
    and interest rates. These lower costs were partially offset by higher
    property taxes.
  *The net effect of other miscellaneous factors positively impacted results
    by $0.01 per share.

Arizona Public Service Co., the Company’s principal subsidiary, reported 2012
third-quarter net income attributable to common shareholder of $247.8 million
versus earnings of $246.3 million for the comparable 2011 quarter.

Financial Outlook

Pinnacle West continues to expect its 2012 consolidated on-going earnings will
be in the range of $3.35 to $3.50 per diluted share. Key factors and
assumptions underlying the outlook remain unchanged, except for the following:

  *Weather assumptions have been updated to reflect actual weather through
    the 2012 third quarter and normal weather patterns for remainder of the
    year; and
  *Anticipated operating expenses (operations and maintenance, excluding
    costs for Renewable Energy Standard and similar regulatory programs;
    depreciation and amortization; and taxes other than income taxes) have
    been reduced to a range of $1.32 billion to $1.35 billion, a decrease from
    the previous range of $1.33 billion to $1.36 billion.

Longer-term, the Company’s goal is to achieve a consolidated earned return on
average common equity of at least 9.5 percent annually in 2012 through 2015.
Key factors and assumptions underlying the outlook can be found in the
third-quarter 2012 earnings presentation slides on the Company’s website at
pinnaclewest.com/investors.

Conference Call and Web Cast

Pinnacle West invites interested parties to listen to the live web cast of
management’s conference call to discuss the Company’s 2012 third-quarter
results, as well as recent developments, at 12 noon ET (9 a.m. AZ time) today,
November 2. The webcast can be accessed at pinnaclewest.com/presentations and
will be available for replay on the website for 30 days. To access the live
conference call by telephone, dial (877) 407-8035 or (201) 689-8035 for
international callers. A replay of the call also will be available until 11:59
p.m. (ET), Friday, November 9, 2012, by calling (877) 660-6853 in the U.S. and
Canada or (201) 612-7415 internationally and entering conference ID number
401419.

General Information

Pinnacle West Capital, an energy holding company based in Phoenix, has
consolidated assets of about $13.5 billion, more than 6,300 megawatts of
generating capacity and about 6,700 employees in Arizona and New Mexico.
Through its principal subsidiary, Arizona Public Service, the Company provides
retail electricity service to more than 1.1 million Arizona homes and
businesses. For more information about Pinnacle West, visit the Company’s
website at pinnaclewest.com.

Dollar amounts in this news release are after income taxes. Earnings per share
amounts are based on average diluted common shares outstanding. For more
information on Pinnacle West’s operating statistics and earnings, please visit
pinnaclewest.com/investors.

                                               
PINNACLE WEST CAPITAL CORPORATION

NON-GAAP FINANCIAL MEASURE RECONCILIATION
                                                      
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

(GAAP MEASURE) TO ON-GOING EARNINGS (NON-GAAP FINANCIAL MEASURE)
                                                      
                         Three Months Ended           Three Months Ended
                         Sept. 30, 2012               Sept. 30, 2011
                         Dollars in   Diluted       Dollars in   Diluted
                         Millions       EPS           Millions       EPS
                                                                     
Net Income
Attributable to          $   244.8      $  2.21       $  255.4       $ 2.32
Common
Shareholders
Less: Income from
Discontinued                ---          ---          (9.6  )      (0.08 )
Operations
On-going Earnings        $   244.8      $  2.21       $  245.8      $ 2.24  
                                                                             

                        NON-GAAP FINANCIAL INFORMATION

In this press release, we refer to “on-going earnings.” On-going earnings is a
“non-GAAP financial measure,” as defined in accordance with SEC rules. We
believe on-going earnings provide investors with a useful indicator of our
results that is comparable among periods because it excludes the effects of
unusual items that may occur on an irregular basis. Investors should note that
these non-GAAP financial measures involve judgments by management, including
whether an item is classified as an unusual item. We use on-going earnings, or
similar concepts, to measure our performance internally in reports for
management.

                          FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements based on our current
expectations, including statements regarding our earnings guidance and
financial outlook and goals. These forward-looking statements are often
identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,”
“expect,” “require,” “intend,” “assume” and similar words. Because actual
results may differ materially from expectations, we caution readers not to
place undue reliance on these statements. A number of factors could cause
future results to differ materially from historical results, or from outcomes
currently expected or sought by Pinnacle West or APS. These factors include,
but are not limited to:

  *our ability to manage capital expenditures and operations and maintenance
    costs while maintaining reliability and customer service levels;
  *variations in demand for electricity, including those due to weather, the
    general economy, customer and sales growth (or decline), and the effects
    of energy conservation measures and distributed generation;
  *power plant and transmission system performance and outages;
  *volatile fuel and purchased power costs;
  *fuel and water supply availability;
  *our ability to achieve timely and adequate rate recovery of our costs,
    including returns on debt and equity capital;
  *regulatory and judicial decisions, developments and proceedings;
  *new legislation or regulation including those relating to environmental
    requirements and nuclear plant operations;
  *our ability to meet renewable energy and energy efficiency mandates and
    recover related costs;
  *risks inherent in the operation of nuclear facilities, including spent
    fuel disposal uncertainty;
  *competition in retail and wholesale power markets;
  *the duration and severity of the economic decline in Arizona and current
    real estate market conditions;
  *the cost of debt and equity capital and the ability to access capital
    markets when required;
  *changes to our credit ratings;
  *the investment performance of the assets of our nuclear decommissioning
    trust, pension, and other postretirement benefit plans and the resulting
    impact on future funding requirements;
  *the liquidity of wholesale power markets and the use of derivative
    contracts in our business;
  *potential shortfalls in insurance coverage;
  *new accounting requirements or new interpretations of existing
    requirements;
  *generation, transmission and distribution facility and system conditions
    and operating costs;
  *the ability to meet the anticipated future need for additional baseload
    generation and associated transmission facilities in our region;
  *the willingness or ability of our counterparties, power plant participants
    and power plant land owners to meet contractual or other obligations or
    extend the rights for continued power plant operations;
  *technological developments affecting the electric industry; and
  *restrictions on dividends or other provisions in our credit agreements and
    Arizona Corporation Commission orders.

These and other factors are discussed in Risk Factors described in Part 1,
Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal
year ended December 31, 2011, which readers should review carefully before
placing any reliance on our financial statements or disclosures. Neither
Pinnacle West nor APS assumes any obligation to update these statements, even
if our internal estimates change, except as required by law.

                                                                    
PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share amounts)
                                                                               
                                                                               
                       THREE MONTHS ENDED                    NINE MONTHS ENDED
                       SEPTEMBER 30,                         SEPTEMBER 30,
                       2012            2011                2012            2011
                                                                               
Operating              $ 1,109,475       $ 1,124,841         $ 2,608,682       $ 2,573,487
Revenues
                                                                               
Operating
Expenses
Fuel and                 302,894           337,896             783,926           793,952
purchased power
Operations and           220,729           210,035             647,628           675,654
maintenance
Depreciation and         100,353           106,350             301,068           319,550
amortization
Taxes other than         36,507            34,223              120,271           112,002
income taxes
Other expenses          1,022           1,320             5,323           4,536     
Total                   661,505         689,824           1,858,216       1,905,694 
                                                                               
Operating Income        447,970         435,017           750,466         667,793   
                                                                               
Other Income
(Deductions)
Allowance for
equity funds             5,708             7,378               15,639            18,697
used during
construction
Other income             420               441                 1,357             2,630
Other expense           (5,696    )      (3,052    )        (12,433   )      (7,921    )
Total                   432             4,767             4,563           13,406    
                                                                               
Interest Expense
Interest charges         52,242            62,034              162,209           183,251
Allowance for
borrowed funds          (3,830    )      (6,939    )        (10,428   )      (14,371   )
used during
construction
Total                   48,412          55,095            151,781         168,880   
                                                                               
Income From
Continuing
Operations               399,990           384,689             603,248           512,319
Before Income
Taxes
                                                                               
Income Taxes            147,116         131,416           219,160         176,229   
                                                                               
Income From
Continuing               252,874           253,273             384,088           336,090
Operations
                                                                               
Income (Loss)
From
Discontinued            (11       )      9,512             (1,595    )      10,860    
Operations Net
of Income Taxes
                                                                               
Net Income               252,863           262,785             382,493           346,950
                                                                               
Less: Net income
attributable to          8,040             7,426               23,582            20,041
noncontrolling
interests
                                                                            
Net Income
Attributable To        $ 244,823        $ 255,359          $ 358,911        $ 326,909   
Common
Shareholders
                                                                               
                                                                               
Weighted-Average
Common Shares            109,555           109,128             109,449           109,003
Outstanding -
Basic
                                                                               
Weighted-Average
Common Shares            110,655           109,861             110,420           109,683
Outstanding -
Diluted
                                                                               
Earnings Per
Weighted-Average
Common Share
Outstanding
Income from
continuing
operations
attributable to        $ 2.23            $ 2.25              $ 3.29            $ 2.90
common
shareholders -
basic
Net income
attributable to
common                 $ 2.23            $ 2.34              $ 3.28            $ 3.00
shareholders -
basic
Income from
continuing
operations
attributable to        $ 2.21            $ 2.24              $ 3.26            $ 2.88
common
shareholders -
diluted
Net income
attributable to
common                 $ 2.21            $ 2.32              $ 3.25            $ 2.98
shareholders -
diluted
                                                                               
Amounts
Attributable To
Common
Shareholders
Income from
continuing             $ 244,834         $ 245,838           $ 360,515         $ 316,001
operations, net
of tax
Discontinued
operations, net         (11       )      9,521             (1,604    )      10,908    
of tax
Net income
attributable to        $ 244,823        $ 255,359          $ 358,911        $ 326,909   
common
shareholders

Contact:

Pinnacle West Capital Corp.
Media Contact:
Alan Bunnell, 602-250-3376
Analyst Contact:
Rebecca Hickman, 602-250-5668
Website: pinnaclewest.com
 
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